The city manager of once-bankrupt Vallejo expects soaring police pension costs to reach 98 percent of pay in a decade. Lodi employees dropped from 490 to 390 in the last decade. And Oroville, after cutting a third of its staff, recently cut police pay 10 percent.
Eight cities struggling with rising pension costs urged the CalPERS board yesterday to analyze two ways to reduce the cost of pensions, even though the proposals were said by the CalPERS attorney to be unconstitutional under current law.
State Sen. John Moorlach, R-Costa Mesa, asked the CalPERS board to analyze the cost of suspending cost-of-living adjustments and giving current employees, for work done in the future, the lower pension for employees hired after Jan. 1, 2013, under reform legislation.
The chairman of the League of California Cities pension committee, Bruce Channing, Laguna Hills city manager, told the CalPERS board that cities throughout the state are “gravely concerned” about “unsustainable” pension costs and all options should be considered.
“Cutting staff, as we have done in my city, is becoming a recurring pattern,” Channing said.
Five unions and retiree groups urged rejection of Moorlach’s request, saying a COLA cut would harm retirees with small pensions. They said Moorlach wants to do away with pensions and should do his own analysis, rather than pass the cost to CalPERS.
The CalPERS board president, Rob Feckner, said he won’t repeat what he said on first seeing the Moorlach letter. He said the request did not come from the entire Legislature, and if Moorlach really believes in his “pet project” he should find another way to fund it.
Vallejo filed for bankruptcy in 2008 and did not cut pensions, a trend followed by the Stockton and San Bernardino bankruptcies in 2012. Vallejo said CalPERS threatened a long legal battle. The other two cities said they needed to be job competitive, particularly for police.
There was speculation several years ago that Vallejo, which had higher costs than the other two cities, may be headed for a second bankruptcy. The Vallejo city manager, Daniel Keen, said he took office three months after Vallejo exited bankruptcy in 2011.
Keen told the CalPERS board yesterday that Vallejo has the same gradual erosion of services that the other seven cities talked about, despite an increase in the sales tax and a tax on medical marijuana.
“We are facing dramatic increases in our pension rates, as are many cities,” Keen said. “We will be looking at 98 percent rates for public safety by ’27-28 and 55 percent rates for our miscellaneous employees in that time frame.”
The Lodi city manager, Steve Schwabaurer, thanked the board for its courage in acknowledging there is a “crisis’ and taking some steps. But he said he has not seen a discussion of options other than asking the cities for more money.
He gave examples of Lodi’s reduced services and employees: “In 2008 we had 490, today we have 390. In 2008 we had 78 police officers, today we have 71. In 2008 we had five active fire stations, today we have four and a quarter.”
Schwabaurer said CalPERS is projecting that Lodi’s pension rates will increase to 38 percent of pay and 78 percent of pay. He said the projected rates will burn up the general fund reserve and the pension stabilization fund.
To give union representatives in the board audience a sense of what that means, he said: “That is one of my police officers 24 hours a day. It’s a fire station. It’s all of my parks and rec, and all of my library. It’s not a choice we can make.”
The Oroville finance director, Ruth Wright, said the city’s workforce was cut by a third two years ago to balance the budget. A recent 10 percent pay cut negotiated for police was “very hard, very sad,” she said, and now pension rates are projected to double in seven years.
“In three to four years our cash flow is going to be gone,” Wright said. “We don’t even know how we are going to operate past four years. We have been saying the bankruptcy word, which is not very popular.”
West Sacramento’s assistant city manager, Phil Wright, said the city was able to successfully bargain with unions to get through the financial difficulty after the recession began in 2008.
“Now I’m sitting at the table telling them there is no money after they have taken 5 percent cuts, paid all of their PERS, and it’s because we can’t afford any money,” Wright said. “Every penny that has been returned to our general fund in property tax and sales tax is going to pay for our PERS benefit.”
Others urging CalPERS to do the cost analysis requested by Moorlach were Concord, Santa Rosa, Chico, Yuba City, and the California Special Districts Association.
Opponents said the Moorlach proposals would violate the “California rule,” a series of state court decisions widely believed to mean that the pension offered at hire becomes a vested right, protected by contract law, that can’t be cut unless offset by a comparable new benefit.
Al Darby of the Retired Public Employees Association said the Moorlach request is an “anti-pension proposal” that the CalPERS actuary extimates would cost 80 hours of work time, not counting followup questions.
He said CalPERS was being asked to do opposition on itself, which is absurd. He said cities should explore other methods of relief, such as better use of technology, innovative contracting, and taxing power.
Neal Johnson of SEIU Local 1000 said the fact that the request comes from one legislator, not a committee, seems to have a “certain aim.” He said the advocates say all options should be considered but the request is for just two.
“It is self-serving,” he said. “It is not in the benefit of the 1.5 million members of the system, and I hope you will reject it. As I said, the data is there. They can do the analysis.”
Board member J.J. Jelincic said “a big problem is that what we are being asked to do is a bullet point for an initiative that will pick out the most extreme number and will ignore all the conditions that went into the assumptions.”
Board member Henry Jones said he appreciates the fiscal responsibility of cities to balance the budget and maintain services. But, he said, the fiduciary responsibility of the CalPERS board is to the members of the pension system.
“Our primary responsibility is to have a sustainable fund to pay retirement benefits for years to come,” he said, “and I think we have exercised some of those responsibilities.”
Jones said CalPERS lowered the earnings forecast used to discount future pension obligations, raising employer rates, and adopted other risk mitigation strategies to maintain the pension system in the long run.
Board member Richard Gillihan said he probably would not support the reforms Moorlach wants analyzed, particularly the COLA cut. But he said the request is being “twisted” by some of his colleagues.
Because the CalPERS staff often responds to stakeholder requests without going to the board, he said, the fact that the Moorlach request is before the board suggests that the board is politicizing it.
He said the Moorlach request comes from not just one legislator but also the cities that urged that CalPERS provide the data. He said it’s difficult to negotiate with the unions, as some members suggested, without the data.
“We are just going to disregard their interest in the data,” Gillihan said. “I find that somewhat insulting.”
Given the comments of most board members, the committee chairman, Richard Costigan, said he would not call for a vote. He instructed the CalPERS chief executive, Marcie Frost, to tell Moorlach where to get information to answer his request.